Malaysia Aviation Group (MAG), the parent company of Malaysia Airlines, learned this the hard way when it grounded ageing aircraft over safety concerns, triggering an 18% reduction in capacity in the fourth quarter of 2024.
These cuts led to the cancellation of nearly 6,300 flights and disrupted around one million passengers.
Significantly, they weighed on the group’s financials, with net profit after interest and tax (NIAT) slumping to RM54 million for the financial year ending 2024.
In the third quarter of this year, MAG has restored operations to near previous levels. Its fleet now stands at 115 aircraft, including 42 Boeing 737-800s under Malaysia Airlines and five under Firefly. However, the age of its fleet remains a structural vulnerability.
“Malaysia Airlines did not invest itself well over the past two decades. The product is outdated,” MAG managing director Izham Ismail told FMT in an exclusive interview.
Lease and supply chain vulnerabilities
Adding to the structural vulnerability is MAG’s historic reliance on operating leases to manage capital expenditure. These 12-year leases may reduce upfront investment, but they shift substantial costs to the tail-end of the aircraft lifecycle.
Under typical end-of-lease clauses, the aircraft must be returned in near-new condition — requiring costly overhauls of engines, interiors and airframes. While viable under normal market conditions, the Covid-19 pandemic exposed the limitations of this approach.
With borders closed, the fleet grounded and supply chains disrupted, the backloaded cost obligations of these leases became a serious strain on MAG’s cash flow.
More than three years on, supply chain instability continues to be a thorn in the industry’s side.
Izham noted that the pandemic’s aftershocks, compounded by geopolitical tensions — particularly in Ukraine, a key source of raw materials for aviation parts — are still driving up costs and delaying access to critical components.
He believes these disruptions are likely to persist for at least another three to five years, pointing out that “the game of catching up or producing components is not an overnight issue”.
For airlines looking to refresh their fleet, long lead times only add to the complexity. “Today, if you order an airplane, it doesn’t come within the (usual) one or two years — it comes five, six years from now,” said Izham.
These bottlenecks are exacerbated by global staff shortages and capacity issues at original equipment manufacturer (OEM) service providers in the maintenance, repair and operations (MRO) segment.
Malaysia Airlines, which relies on Rolls-Royce and GE for engine maintenance and replacement, has found that despite service level agreements stipulating a 55-75-day window, aircraft and engines are often returned only after more than 100 days.
While the situation is industry-wide, Izham admitted that some competitors are better equipped to weather the disruption.
“Other airlines have larger volumes in assets — they are able to reconfigure their network to accommodate the shortage of airplanes,” he said.
Repairing the balance sheet
MAG has taken several steps to address these longstanding vulnerabilities. Over 90% of its fleet was on operating leases, many of which were nearing maturity and bringing with them heavy maintenance obligations.
To mitigate risks, the group launched a RM15 billion debt restructuring in 2020-2021. The effort included negotiations with lessors and creditors to defer payments, revise rental terms and ease end-of-lease conditions.
According to Izham, the result has been a leaner, more agile balance sheet.
Still, long-term sustainability will require a rethinking of the group’s leasing strategy. MAG plans to gradually shift from operating leases towards a more balanced model that incorporates financial leases, which allow airlines to own aircraft via capital or debt financing.
“Currently, our assets are predominantly (about 90%) operating on leases.
“Slowly, we are shifting towards a more amiable position of at least striking a balance between operating leases and financing leases… But this doesn’t happen overnight. We can only attain that in 2035. So, we have a long way to go,” Izham said.
Despite improvements in top-line performance, Izham acknowledged that the group’s cost base is “not yet fully transformed”.
Scaling up for survival
With restructuring under way, MAG is also turning its focus towards fleet renewal and growth. The strategy is clear — scale matters.
Izham explained that in today’s aviation market, having a sufficient fleet size is essential for pricing power and market share.
“You look at the low-cost carriers — they have hundreds of airplanes. It’s all about scale.
“The minute you have scale, you control market share. And when you have market share, you can price a product efficiently.”
As part of its wider plan to modernise and expand its fleet, MAG is investing billions in new planes, including announcements of recent orders for narrow-body Boeing 737-8 and 737-10 aircraft and ongoing delivery of the wide-body A330neo aircraft since late 2024.
The airline had also announced the acquisition of 20 additional A330neo aircraft, reinforcing its long-term vision of building a future-ready fleet that supports sustainable growth, delivers consistent value to passengers and strengthens competitiveness in key markets.
For Izham, the need to scale isn’t just strategic — it’s existential.
He added that Malaysia Airlines has had a chequered journey, but what was more crucial was having the stamina to move forward. “Will it turn around overnight? The answer is no. It’s all about resilience and staying the course.”